KKR to purchase Harvard dairy assets

Harvard’s exit from its New Zealand dairy investments comes amidst personnel changes and a refinement of its approach to natural resources.

KKR is in talks to purchase Harvard Management Company‘s dairy investments in New Zealand for more than $70 million, a source familiar with the deal told Agri Investor.

The source said that the sale would include 8,500 acres of dairy farms and 5,500 cows located on the South Island of New Zealand and is expected to close at the end of 2017 at the earliest, pending regulatory approval.

HMC, which manages Harvard University’s $35.7 billion endowment, has spent $40 million on dairy farms and improvements in New Zealand over the past decade, and the KKR deal is expected to turn a profit, according to the source.

The Wall Street Journal first reported the deal Tuesday, citing unnamed people familiar with the matter.

KKR and HMC representatives declined to comment.

The sale comes amid a reorganization of HMC’s $4 billion natural resources portfolio, which had negative returns of 10.2 percent last year, according to the endowment’s 2016 annual report. The report said that the limited number of market transactions for timber and agricultural land last year impacted short-term liquidity, while the portfolio’s performance was further challenged by drought and political conditions in South America.

In a January open letter, HMC chief executive officer N.P. ‘Narv’ Narvekar outlined a “transformation” he hoped to lead at the endowment after having assumed the role in September 2016.

Narvekar wrote he would attempt to help the endowment adapt to the increasing use of a mixture of internal and external investment teams and a “silo” approach focused on specialists in certain strategies or assets.

“The tremendous flow of capital to external managers has created a great deal of competition for talent and ideas, therefore making it more difficult to attract and retain the necessary investment expertise while also remaining sufficiently nimble to exploit rapidly changing opportunities,” Narvekar wrote.

The letter went on to say that, while a previously internal hedge fund would leave HMC and another unit devoted to real estate investments would spin out to become a separate company, HMC’s natural resources portfolio would continue to be managed internally and focus on timber and agricultural investments.

In August, HMC brought on former TIAA Global Agriculture Fund Committee member Colin Butterfield to lead its natural resources division. Demonstating the challenge referenced in Narvekar’s letter, that position had been vacant since September 2015 when Butterfield’s predecessor, Alvaro Aguirre, left the endowment to launch Folium Capital together with HMC’s former head of timberland, Andrew Wiltshire.

“We will look to Colin to refine our natural resources investment strategy and to bring the best opportunities at scale to our portfolio,” HMC chief operating officer Robert Ettl wrote in the 2016 annual report.